China awarded first Abu Dhabi oil rig deal

Oilfield services contract a further sign of deepening commercial ties between the world's second-biggest energy consumer and Gulf oil exporters.

An ADNOC drilling rig in Abu Dhabi. Baoji Oilfield Machinery's oilfield services contract is a first for a Chinese state oil firm in the emirate.

A Chinese state oil firm has for the first time won an oilfield services contract in Abu Dhabi, in a sign of deepening commercial ties between the world's second-biggest energy consumer and Gulf oil exporters. National Drilling Company, the drilling unit of the Abu Dhabi National Oil Company (ADNOC), said on Thursday it had awarded an Dh800 million (US$218m) contract to -Baoji Oilfield Machinery, a subsidiary of the China National Petroleum Corporation (CNPC), to supply oil rigs for onshore drilling. The deal closely follows last month's visit to China by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, to foster strategic co-operation with Beijing. During the visit, an agreement between ADNOC and CNPC to work together on oil and petrochemicals projects figured prominently in talks between Sheikh Mohammed and Hu Jintao, the Chinese president. Thursday's agreement adds the UAE to a growing list of regional energy exporters to have welcomed Chinese contractors to their oil and gas sectors. The trend underscores China's growing importance to the Middle East as a reliable customer for crude during a period when western oil consumption has been falling. The Gulf region provides a solid market in tough economic times for a country looking to sell goods and buy energy. "Trade is increasing substantially and at the same time trade between China and the US has been affected by the current financial crisis," said Dr Ibrahim Oweiss, a professor of economics at Georgetown University's School of Foreign Service in Qatar. "Therefore, it's in the best interests of China to develop further relations with the Gulf countries." Earlier this month, Qatar Petroleum awarded a 25-year contract to China National Offshore Oil Corporation (CNOOC) to explore for oil and gas off the coast of Qatar, marking the first time the emirate had awarded a concession to an Asian firm. CNOOC is planning to spend $100m to drill exploration wells in Qatari waters in the next five years. In July, another Chinese state-controlled oil company, Sinopec, won a $140m contract to supply drilling rigs to the Kuwait Oil Company after Kuwait said it was aiming to export 500,000 barrels per day of oil to China by 2015. In the same month, Saudi Aramco awarded three contracts to BGP Arabia, a joint venture between Saudi Arabia's Rafid Group and CNPC, to gather geophysical data on the Manifa oilfield in the Gulf and potential gas deposits in the Rub al Khali (Empty Quarter) and Red Sea. In the downstream petroleum industry, CNPC recently finished building a $385m refinery at Skikda in the north-east of Algeria to process condensate, a liquid byproduct of gas production, to yield fuels such as naphtha, butane and jet fuel. And Kuwait Oil and Sinopec have agreed to build a $9 billion oil refinery in China. Chinese firms have also made inroads into the oil and gas sectors of Iraq and Iran, assuming risks few western firms have been willing or able to take. Last year, CNPC became the first foreign firm in more than 30 years to win a major Iraqi oilfield development contract when it signed a 25-year, $3bn agreement with Baghdad to pump oil from the Al Adhab field. In June, the Chinese company teamed up with Britain's BP to win a 20-year deal to boost output from Iraq's biggest oilfield, Rumaila - the only contract awarded in Iraq's first post-war auction of oil licences. Despite a continuing dispute between Baghdad and the regional government of Iraqi Kurdistan over oil jurisdiction and territory, Sinopec is also testing the waters in the semi-autonomous Kurdish enclave with its recent $7.2bn acquisition of Addax Petroleum, one of the region's first oil producers. In Iran, CNPC last month signed deals with the National Iranian Oil Company to develop the South Azadegan oilfield, which holds more than 5 billion barrels of crude, and to develop the nearby North Azadegan field in two phases, with the first phase expected to cost $1.8bn. In June, it signed a $4.7bn deal to develop phase 11 of Iran's giant South Pars gasfield after Tehran decided to displace the French oil group Total from the project. Iran is under US and UN sanctions over its controversial nuclear programme, which has caused western companies to withhold previously planned investment in Iranian oil and gas developments. Beijing has been among the chief international critics of the sanctions, arguing they are unlikely to persuade Tehran to give up the uranium enrichment programme western powers fear is linked to covert weapons development. Beijing's commercial engagement with Tehran dates back many years and has strengthened during the protracted nuclear spat. Its forays into the Gulf, however, are more recent. Previously, China was better known for its push into Africa, where its state-controlled companies secured major oil concessions in exporting countries such as -Angola. While Beijing has recently broadened its global search for new energy supplies to new regions, including the Middle East, it continues to show strong interest in strengthening its African presence. This week, Ethiopia signed deals worth more than $960m with the Chinese power companies Sinohydro and China Gezhouba Group to develop hydroelectricity and windpower projects. [e-mail]